Four reasons to buy a holiday home for your twilight years while you’re still fully employed
Are you planning to leave the workplace sometime in the next five to 10 years? Buying your holiday home now can pay off big in the long term, particularly if you’re going to get a mortgage.
By making your move ASAP, you’ll be able to capitalize on today’s record-low interest rates, at least, as long as they last.
There are more financial benefits to purchasing your holiday home while you’re still working full time. Here are four reasons why you should buy now rather than wait until you retire.
Easier to get approved for a mortgage
When mortgage lenders evaluate your loan application they look closely at your debt-to-income ratio (DTI) — your total monthly debt divided by your gross monthly income — which is going to be a lower, more favorable percentage while you’re fully employed.
Therefore, it’s easier to qualify for a home loan while you’re still earning a steady paycheck.
Moreover, by waiting until you’re retired to apply for a mortgage, you could be limiting what size loan you can qualify for.
More cash flow for renovations | Second home
Unless you’re buying a newly remodeled home or a new build home, you’re probably going to want to make some changes to your new property.
While you can — and should — set a budget for the work you plan to do to the home, it’s nice to have a regular income when you’re updating or modifying your home.
A head start on paying off your mortgage
Ideally you want to be debt-free in retirement. But if you choose to become an owner of a holiday home, the earlier you purchase it, the sooner you can start paying off your mortgage.
Additionally, by starting to tackle your mortgage debt while you’re still actively working, you’re in a position to accelerate your payments — a move you may not be able to pull off when you’re living on a fixed budget in retirement.
Plan better for the long term
Currently, one of the biggest challenges is predicting what your living expenses will be in retirement.
By buying your holiday home now, you’ll get a better picture of what your monthly expenses will be in retirement — and that means you can create a more accurate budget.
If you have a mortgage in retirement, it’s probably going to be your largest monthly expense. Knowing what your [monthly] mortgage payment will be is extremely beneficial.
An extra perk to buying a holiday home at the Costa Blanca long before you retire is that the cost of living is considerably lower in Spain. As doing your weekly grocery shopping or going to a restaurant will only cost you a fraction of what you would pay in northern European countries, every stay in your holiday home may have a very positive influence on your budget.
Hence people, who decided to buy their holiday home earlier in life, tend to come more often and stay for longer periods as time goes by. Many even spend the entire autumn and winter of their home country at their holiday home and some even become residents in Spain.
Expand your portfolio | Second home
If you’re financially able to carry two mortgages at once or if you have the means available, it may make sense to buy your holiday home now and rent it out for a few years until you have them to make the maximum use of it yourself.
Owning a rental property could also help you retire sooner since you’re adding an extra stream of income that you can put toward your nest egg.
On the other hand, you can choose to enjoy the use of your holiday home yourself most of the time and rent it out part of the time.
If you make sure your holiday home is suitable for renting and if it is situated in a good location, you need to rent it out only 1 or 2 weeks in high season to recover your annual costs. So renting it out a couple of weeks more will help you set aside some savings to buy that extra appliance or to do some refurbishing in due time.
And naturally, you can be selective about whom you want to rent out to, e.g. family, friends and close acquaintances.